A return to real growth

The FNB House Price Index showed a further acceleration in year-on-year growth from a February revised figure of 6.2 percent to a March rate of 8.6 percent.

This remains mostly the result of five percentage points worth of interest rate cuts in 2008/09, but is believed to be increasingly supported by the economic growth recovery underway and a resultant return to positive real household sector disposable income growth from the fourth quarter of 2009.

The Index also showed:

•The average house price was estimated at R779 546.

•From the bottom point of the 2008/9 price slump in June 2009, the cumulative nominal increase in the FNB House Price Index as at March amounts to +11.8 percent. Since the start of the index numbers back in July 2000, almost 10 years ago, the cumulative increase to date is 197.9 percent.

•In real terms (adjusted for consumer price inflation), house prices had started to increase as from August 2009, and have risen cumulatively by 10.6 percent. This comes after a lengthy period of real house price decline of -20 percent spanning from March 2008 to July 2009.
Finally, in February, real house prices started to inflate in year-on-year terms too (February 2010 compared to February 2009), to the tune of 0.5 percent, with nominal house price inflation of 6.2 percent in that month exceeding the consumer price inflation rate of 5.7 percent.

Since the start of the index numbers back in July 2000, almost 10 years ago, the cumulative increase in real terms to date is 71.6 percent.

Outlook

Finally, the expectation for average house price inflation for the entire 2010 is now a little higher at 8.6 percent for the year as a whole.

However, the expected trend remains similar to previous expectations, i.e. that the big interest rate stimulus of 2009 will wear thinner in the second half of 2010 (the recent (March) 50 basis point rate cut having only a slight impact) and that this is expected to result in a diminishing house price inflation rate during the second half of the year after a mid-year peak.

Article By: John Loos and Ewald Kellerman - www.iafrica.com